Fatupaito v Li
[2019] NZHC 2691
•21 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2000
[2019] NZHC 2691
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of Starplus Homes Limited (In Liquidation)
BETWEEN
VIVIAN JUDITH FATUPAITO and
ANDREW JOHN HAWKES as liquidators of Starplus Homes Limited (In Liquidation) Applicants
AND
YUHUA LI
First Respondent
JINGCHUN YANG
Second Respondent
Hearing: 18 October 2019 Appearances:
N F D Moffatt for the Applicants No appearance for the Respondents
Judgment:
21 October 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 21 October 2019 at 3.00 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Bell Gully, Auckland
FATUPAITO v LI [2019] NZHC 2691 [21 October 2019]
[1] Ms Fatupaito, one of the applicants, is one of two liquidators of the company Starplus Homes Ltd (In Liquidation) (Starplus). Starplus was put into liquidation by its shareholder on 22 April 2013.
[2] Although named as an applicant, Mr Hawkes resigned as a joint liquidator of Starplus on 10 June 2019, and Mr Leon Francis Bowker was appointed in his place. Mr Moffatt asks for an order substituting Mr Bowker as joint applicant with Ms Fatupaito, and I agree that that order is appropriate. I accordingly substitute Leon Francis Bowker for Andrew John Hawkes, so that the joint applicants are now Ms Fatupaito and Mr Bowker in their capacities as the current liquidators of Starplus. I will refer to them jointly as "the liquidators".
[3] The liquidators now apply for directions under s 284 of the Companies Act 1993 (the Act), relating to a sum of $31,906 (the retained sum) that has been held in the trust account of Bell Gully pending agreement between the liquidators and the respondents as to its disbursement, or Court order for its disbursement. The liquidators say that the retained sum should be paid to them. If no order is made to that effect, they intend to disclaim the retained sum.
[4] The respondents, Mr Yuhua Li and Mr Jingchun Yang, are close relatives of Mr Richard Lee, who was the sole director and shareholder of Starplus prior to its liquidation. The liquidators have been unable to locate either respondent since the agreement was reached under which the retained sum has been held by Bell Gully, and although Mr Li and Mr Yang would have known of the existence of the retained sum they have made no attempt since 2013 to contact the liquidators about it.
[5] Having been unsuccessful in locating the respondents, the liquidators commenced this proceeding on 19 September 2019. An order for substituted service on the respondents was made by Associate Judge Andrew on 20 September 2019, providing for the Court documents to be emailed to Mr Richard Lee, and for the application to be advertised on one occasion in the New Zealand Herald newspaper. In accordance with the High Court Rules 2016, any notice of opposition to the application had to be filed and served within 10 working days after service.
[6] An affidavit has been provided showing that service on the respondents was effected in accordance with the order for substituted service on 26 September 2019. No notice of opposition has since been filed.
[7] The application was called in the Companies (Miscellaneous) List on 18 October 2019, and I heard brief oral submissions from Mr Moffatt on behalf of the liquidators. Having considered those submissions, I now give judgment on the liquidators' application for directions.
Background
[8] Before its liquidation, Starplus was involved in land development activities. They eventually proved to be unsuccessful. Unsecured creditors are currently owed
$9,647,502.21.
[9] Starplus operated by purchasing sections from other property developers, paying a five per cent deposit, with settlement to occur at a future date. It would then enter into a sale and purchase agreement for the property while developing it. On completion of the development, Starplus would settle with both the property developer and its own purchaser, contemporaneously.
[10] According to Mr Bowker, Starplus ran into significant cashflow problems caused by rapid growth and inadequate financial controls and planning, leading to its liquidation.
[11] In November 2012, Starplus entered into an agreement with a developer, Addison Developments Ltd (Addison), to purchase a number of properties in Kuaka Drive, Takanini (the Yang properties). After entering into this purchase agreement, Starplus nominated the respondent Mr Yang to complete the purchase. With the assistance of mortgage finance from Basecorp Finance Ltd (Basecorp), Mr Yang became the registered proprietor of the Yang properties.
[12] A similar arrangement was entered into for the purchase from Addison of four other properties in Kuaka Drive, Takanini (the Li properties). On 12 December 2012 Starplus agreed to buy the Li properties from Addison, and before settlement it
nominated the respondent Mr Li to be the purchaser. Again with the assistance of finance from Basecorp, Mr Li became the registered proprietor of the Li properties.
[13] An examination of Starplus' accounting records following the liquidation showed that it had expended a total of $766,027 for the deposits on the Li properties and developing them following settlement. There were additional costs incurred by Starplus in respect of the Li properties in March 2013 that were not shown in Starplus' accounting records, of $79,761. The liquidators calculate that Starplus expended a total of $845,788 in acquiring and developing the Li properties.
[14] At the date of the liquidation, Starplus' ledger recorded a balance due to Mr Li of $372,890. Taking account of Starplus' costs of acquiring and developing the Li properties, the liquidators concluded that there was a net amount owing by Mr Li to Starplus of $472,897.
[15] There was a similar situation with the Yang properties. At the date of the liquidation, Mr Yang had provided funding of $922,005 for the development of the Yang properties, but $155,536 of that sum was repaid to him on 12 April 2013, and there were development costs of $824,876 incurred by Starplus on the Yang properties for which had never been reimbursed. The liquidators calculated there was a net sum of $58,408 owed by Mr Yang to Starplus.
[16] The acquisition of the Li properties and the Yang properties was financed by Basecorp, and the funding over and above the funding required to purchase the Li properties and the Yang properties was remitted by Basecorp to Starplus. However, the moneys paid to Starplus were treated as being loans to Starplus from Mr Li and Mr Yang.
[17] The issue of Starplus expending considerable money developing the Yang properties and the Li properties, with no corresponding benefit, came to a head when Starplus was put into liquidation. In mid-July 2013, Mr Li and Mr Yang sought to sell the Li properties and the Yang properties to third parties. Along with Basecorp, they requested the liquidators who were then appointed to authorise Auckland Council to release Code Compliance Certificates in respect of the properties they wished to sell,
so that the sale prices Mr Li and Mr Yang would achieve on the on-sales would be enhanced.
[18] Discussions ensued with the liquidators of Starplus at the time, culminating in Starplus entering into separate deeds of undertaking with Mr Li and Mr Yang, on materially identical terms. Under the deeds of undertaking, the liquidators recovered for Starplus the deposits it had paid to Addison ($22,740 in respect of the Li properties, and the same amount in respect of the Yang properties). With the recovery of the deposits, the net balance due from Mr Li to Starplus was $450,157, and the net balance due to Starplus by Mr Yang was $35,668.
[19] The on-sales of the Li properties produced a surplus of $8,164.81, and the on-sales of the Yang properties produced a surplus of $21,467.51. Those sums were transferred by the solicitors acting for Mr Li and Mr Yang to Bell Gully, on 15 August 2013, pursuant to the following clause in the two deeds of undertaking.
1.2 In consideration for Starplus agreeing to authorise the Council to release the Council file and the CCCs for the Properties … Basecorp and [Mr Li or Mr Yang as appropriate] each severally agree and undertake that:
…
(c) any surplus on settlement of the On-Sales, after payment to Starplus, Basecorp, rates, legal costs and agent's commission (the Surplus), is to be immediately paid in full to Bell Gully where the Surplus will be held, pending agreement of Starplus and [Mr Li or Mr Yang as appropriate] or Court order;
…
[20] The two sums paid into Bell Gully's trust account by the solicitors for Mr Li and Mr Yang comprise the bulk of the retained sum (I infer that the small balance represents interest earned on the deposit since 2013).
[21] Mr Bowker said in his affidavit that it is unclear whether Mr Li and Mr Yang are still based in New Zealand. At the time the deeds of undertaking were entered into, all correspondence was through the lawyer then acting for them, Ms Nie of Alice Lawyers Ltd.
[22] In February 2016 the then-liquidators wrote to Mr Li and Mr Yang, formally rejecting proofs of debt they had filed in the liquidation, and claiming the moneys each of them owed to Starplus. No response to these letters was received.
[23] The then-liquidators followed up with Ms Nie in March and July of 2018, but she advised that she had lost contact with Mr Li and Mr Yang since the liquidation. The then-liquidators also emailed Mr Richard Lee, asking him to provide contact details for Mr Li and Mr Yang, but there was no response. They retained a private investigation firm to attempt to trace Mr Lee, but again there was no success.
[24] Mr Bowker calculated that, even after accounting for the recovery of the net surplus from the sale of the Li properties ($8,164.81), Mr Li would still remain indebted to Starplus. Similarly, after accounting for the recovery of the net surplus from the sale of the Yang properties ($21,467.51), Mr Yang would still remain indebted to Starplus.
[25] In the circumstances, set out above, the liquidators submitted that the appropriate direction is that the retained sum be paid to the liquidators for distribution to Starplus' creditors.
Analysis
[26] The unopposed evidence of Mr Bowker is that Starplus provided goods and/or services in acquiring and developing the Li properties worth considerably in excess of the amount which it owed to Mr Li. Whether Starplus' claim against Mr Li is based in express or implied contract, or by way of constructive or resulting trust, it is more likely than not that the net amount owed by Mr Li to Starplus is well in excess of that part of the retained sum representing the net proceeds of the on-sales of the Li properties ($8,164.81). In those circumstances, I conclude that $8,164.81 of the retained sum, plus any interest earned thereon, represents money owed by Mr Li to Starplus, and should be paid to the liquidators for distribution to the creditors of Starplus.
[27] The same result applies to the net proceeds of the on-sales of the Yang properties. It is more likely than not that the net sum owed by Mr Yang to Starplus
exceeds the sum of $21,467.51, being that part of the retained sum that represents the net proceeds of the on-sales of the Yang properties. I therefore conclude that
$21,467.51 of the retained sum, plus interest earned thereon, represents money owing by Mr Yang to Starplus, and that it should be paid to the liquidators for distribution to the creditors of Starplus.
Result
[28] I direct under s 284 of the Act that the sum of $31,906 (the retained sum), plus any further interest that may have been earned thereon, is to be paid to the liquidators for distribution to Starplus' creditors.
[29] Leave is reserved to the liquidators to apply for any further directions that may be required.
Associate Judge Smith
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